Why Is Vungle Worth $750 Million?

When private equity firm Blackstone announced its plan this week to acquire video-focused mobile ad network Vungle, multiple sources pegged the deal at $750 million – a remarkably large price tag for a company that only raised a little over $25 million.

The question is, why so high?

Mobile gaming is massive

For one, Vungle has the potential to be a cash cow for Blackstone.

Mobile gaming is a massive business, and it’s only growing. Smartphone game revenue is on track to bring in just under $55 billion this year, according to the most recent global games market report from mobile marketing researcher Newzoo.

“Anywhere there is opportunity in a growth sector, there will inevitably be action,” said Matt Barash, head of strategy and business development at AdColony.

Advertisers are also looking to expand beyond Google and Facebook, where CPMs and CPCs have been consistently on the rise over the last couple of years.

And Blackstone isn’t the only PE firm that’s enthusiastic about the mobile gaming space. Private equity player KKR bought a $400 million minority stake in AppLovin last year, which raised the app marketing and discovery platform’s valuation to roughly $2 billion.

Vungle has better inventory than most mobile nets

But the app marketing space is also rife with challenges.

There’s install fraud, malware and low-quality supply coming from long-tail publishers and straight-up content scammers – which means Vungle would have been crazy to try for an IPO exit. The comparables are scary: Google, Facebook and a rabble of small, trashy inventory aggregators.

One growth marketer AdExchanger spoke with noted that the common wisdom among performance marketers is that something like 95% of display networks are garbage, and that the remaining 5% often have scale problems.

And so while $750 million may seem steep, Vungle has built up a rep for quality, said John Koetsier, VP of insights at mobile attribution platform Singular, which releases an annual index of mobile ad networks by the ROI they generate. Vungle ranked fifth on the 2019 list for both Android and iOS.

Many publishers use Vungle’s SDK

Vungle’s large SDK footprint – it’s embedded with more than 60,000 publishers, including Rovio and Pandora – has something to do with that, Koetsier said.

“Getting minor apps to put a new SDK in is no big deal – getting major apps to switch out SDKs is huge,” Koetsier said. “Only four ad networks have more SDK coverage than Vungle among top-grossing apps, and two of them are from Facebook and Google.”

Having a first-party relationship with publishers also bodes well as the mobile market moves away from legacy practices and into a “programmatic-first mindset,” Barash said.

Blackstone has deep pockets

Still, three-quarters of a billion is a lot to pay for a well-seeded SDK. Other networks or DSPs are doubtlessly shopping themselves for far cheaper.

But Blackstone, which just closed an $11 billion secondary market fund, has incredibly deep pockets, and price tags are relative.

For the digital space, $750 million is a massive exit, Barash said, but for a player like Blackstone, it’s actually a modest bet – albeit “with the potential for a huge incremental return over the course of their investment.”

“Mobile marketing represents a rapidly growing addressable market, and Blackstone clearly sees the upside opportunity in the growth profile of the sector,” he said.

Vungle’s focus on video advertising was also likely quite appealing. US advertisers are set to spend $16.41 billion on mobile video advertising in 2019, which represents 45.6% of total digital video ad spend, based on estimates from eMarketer.

“The biggest bet is on video budgets shifting away from legacy broadcasters and social platforms,” Barash said, “and into the channels where hard-to-reach demographics are the core audiences.”

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